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What's Next for Wyndham?

On the heels of The Blackstone Group's announcement in June that it will acquire Wyndham International Inc., hotel industry insiders say the New York-based private investment group could emerge as a major player in the lodging business with brands spanning across all segments.

Blackstone Real Estate Partners has amassed more than $6 billion in total equity through five funds. The company now owns luxury, full-service, limited-service and extended-stay hotel brands. The mix of property types makes Blackstone a competitor to other multi-brand hotel operators, such as Starwood, Hilton, Marriott International and InterContinental Hotels Group (IHG).

Sources familiar with Blackstone were not surprised when it unveiled plans in June to acquire Wyndham in a deal valued at $3.24 billion, which includes assuming $1.8 billion in debt. The deal is expected to close in the fourth quarter.

Blackstone executives declined to comment on their plans for Wyndham, but the investment group has historically been an opportunistic buyer. For example, when it acquired Prime Hospitality Corp. late last year, Blackstone gained three branded hotel chains — AmeriSuites, Wellesley Inns & Suites, and Prime Hotels and Resorts. Soon after it bought the company, Blackstone turned around and sold AmeriSuites, with 143 hotels, to Hyatt Corp. for a reported $600 million in early 2005.

Despite the AmeriSuites sale, Blackstone has been bulking up on hotel acquisitions. Last year, it also bought Boca Resorts Inc., with five destination resorts in Florida, and Extended Stay America Inc., which gave it a portfolio of 475 value-priced extended-stay hotels branded as Crossland Economy Studios, Extended StayAmerica Efficiency Studios and StudioPLUS Deluxe Studios.

Arthur Adler, managing director and CEO at Jones Lang LaSalle Hotels, says Blackstone may decide to sell one or more of the Wyndham brands to focus on growth in select segments. It could also hold onto the company or sell it in its entirety if the time and price are right.

If Blackstone holds onto Wyndham, it could rejuvenate the Wyndham brand lineup, which includes Wyndham hotels and the extended-stay Summerfield Suites. Wyndham also owns several luxury resorts, such as The Boulders Resort and the Wyndham El Conquistador.

“At one point, Wyndham had strong brand identity, but that's been fading. The brand image has become a bit tarnished,” says Jack Corgel, managing director at PKF Hospitality Research Group.

Wyndham's problems started when it was acquired by REIT Patriot American Hospitality in 1998. Wyndham became the hotel management arm of the paired-share REIT and ran the myriad of properties that Patriot rapidly acquired. In June 1999, the company converted to a C-corporation and the new entity became known as Wyndham International.

Fred Kleisner, president and CEO, then began restructuring the company, which had bulked up to 317 hotels. The goal: to reduce the company's almost $4 billion of debt by selling non-core assets, including dozens of properties that carried franchise agreements with competing brands.

Wyndham has sold off 187 properties, raising $2.7 billion. The company's portfolio now includes 150 properties, 36 of which are owned or leased. A streamlined group of hotels, however, still hasn't been enough to resurrect Wyndham, particularly when its competitors are investing in brand expansion. Wyndham's stock has continued to flounder, trading at $1.11 in late June.

“Wyndham was loaded with debt and couldn't grow the company,” says Corgel. “It just sort of wilted on the vine.”